Republicans attack new global insurance rules

Global insurance rules face a revolt in the US as Republicans spearhead complaints that international regulators who they say lack accountability are imposing inappropriate standards on American companies.

The financial crisis and the government rescue of US insurer AIG prompted a new regulatory regime for insurance, but the Republican takeover of Congress has brought to the surface deep unease over their development in the US.

While the discontent in Washington is not universal, it signals trouble for the Financial Stability Board, a group of regulators and central bankers set up by the Group of 20 leading economies in 2009 to fortify the global financial system.

At the head of the Republican attacks is Richard Shelby, chairman of the Senate banking committee, who used a hearing on Tuesday to showcase a range of concerns about the FSB's influence.

"An international regulatory regime should not dictate how US regulators supervise American or US-based companies," he said in comments consistent with longstanding Republican scepticism towards a variety of international forums.

He lamented that decisions made by the FSB - which is based in Basel, Switzerland - had been adopted "with what appears to be little independent evaluation" by the US's umbrella group of regulators, the Financial Stability Oversight Council.

The FSB decided that three US insurers - AIG, Prudential Financial and MetLife - are so critical to the financial system that they must be subject to tighter global regulation and potentially higher capital requirements. The FSOC has also designated the three as "systemically important".

"The FSB is not a US regulator, and it is not accountable to Congress or the American people," Mr Shelby said. "Therefore, the FSOC should not merely be a rubber stamp for the decisions made by an unaccountable international body like the FSB."

The FSB has no powers to enforce recommendations and instead relies on soft diplomacy of its members to ensure that its proposals are implemented by each country. The FSB declined to comment.

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Despite Republican concerns, signs of US sway at the FSB emerged this month with the revelation that the Bank of England had written to the US Treasury to ask why the reinsurance business of Warren Buffett's Berkshire Hathaway was left off its list of "too big to fail" institutions.

Mr Shelby controls what legislation emerges from the banking committee for a full vote in the Senate and is preparing a comprehensive financial reform bill.

On Monday two Senators - Dean Heller, a Republican from Nevada, and Jon Tester, a Democrat from Montana - introduced a bill to "bring more accountability and transparency to the international insurance process".

<>The FSB is due to promulgate capital requirements for insurers, which are being written by the International Association of Insurance Supervisors, and "resolution" standards for winding up insurers in the event of failure.

Roy Woodall, an independent member of the FSOC and an insurance expert, told the committee that a "contorted international framework" was "why I think we should be cautious about ongoing initiatives".

He said: "There is still time to ensure that any international agreement consented to by the FSB is reached through a more open process that is in the best interests of the US."

Mr Shelby noted that Jack Lew, US Treasury secretary, had previously told the committee that FSB decisions did not bind the FSOC. Michael McRaith, a Treasury director, said on Tuesday that international standards are "not self-executing in the US", because state and federal regulators study and test their impact before any implementation.

"We work with our international counterparts to build a global consensus that works for the United States," he said.

David Green, the former head of international policy at the UK's financial watchdog, said Mr Shelby's comments were consistent with the "long-held congressional tradition of sovereignty".

"It is a quite carefully worded statement that does not necessarily disagree with the substance of FSB decisions, just that they have not been independently evaluated to satisfy that they meet US requirements," Mr Green said.

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